Step 1: Identify income or revenue

Income or revenue is your sales. You may have more than one type of product category and may wish to show the income breakdown by product type. This can reveal which product(s) are performing well and which are underperforming. Your main income/revenue will come from the sale of your service or product(s).

There could also be secondary income in the form of interest earned from your bank, earnings from investments or commissions received.

If you have developed your business plan, you would have identified what income you expected to generate based on the number of items you projected to sell, or the budgeted number of chargeable hours.

If you’ve not developed your business plan yet, consider creating a summary of what you think you will generate in sales.

To do this, think about how many units (items or hours) you will sell, and multiply it by the price per unit. Do this for each item, month by month, for 12 months. The total will provide you with your projected income or revenue.

Once you have identified your income or revenue, this will allow you to move to the next step in creating your income statement.

Case Study

Paul is very excited about his first year in business. He forecasts that he will generate 1,500 unit sales for the year and believes he will sell the same number of units each month for the 12 months. He will sell each unit for $60.

From the information, calculate Paul’s annual projected income or revenue. Do you think, given the knowledge you have of Paul, that he should reconsider his monthly projection and take into account any seasonality in sales?